(Updates to close of US markets)

* Fed, ECB, BOJ, BOE to weigh in on economic outlook this

week

* Oil prices rise amid Iran-UAE tensions

* Fed expected to hold rates steady amid current oil

shock

By Chuck Mikolajczak

NEW YORK, March 17 (Reuters) - Global stocks advanced on

Tuesday for a second straight session, even as the war in Iran

kept driving up oil prices and ahead of a flurry of policy

announcements from global central banks this week.

Israel said it killed Iran's security chief, while a senior

Iranian official said the new supreme leader rejected

de-escalation offers conveyed by intermediaries.

President Donald Trump told reporters the United States is not

ready to leave the military operation in Iran yet, but that

"we'll be leaving in pretty much the very near future."

U.S. crude settled up 2.9% to $96.21 a barrel and Brent

climbed 3.2% to settle at $103.42 per barrel, supported

by Iranian attacks on the United Arab Emirates that stoked

supply fears while the Strait of Hormuz remained largely shut.

Both contracts were off earlier gains of about 5% but remained

up more than 40% for the month.

MAJOR S&P SECTORS ADVANCE

On Wall Street, U.S. stocks closed higher, led by a 1% rise in

the S&P 500 energy index. Despite rising fuel costs,

airline and travel stocks also advanced after Delta Air

and American Airlines ( AAL ) flagged strong spring demand while

investor focus turned to the Federal Reserve's policy

announcement on Wednesday.

"The place where we could get in trouble with this is if the

Fed views the oil shock as inflationary and decides to respond

with more hawkish monetary policy," said Ross Mayfield, an

investment strategist at Baird Private Wealth Management." The

best-case scenario would be some confirmation tomorrow

(Wednesday) that the Fed is monitoring the situation, but kind

of adheres to what they've done in the past, which is try to

look through big oil shocks."

The Dow Jones Industrial Average edged up 47.40

points, or 0.10%, to 46,993.81, the S&P 500 rose 16.75

points, or 0.25%, to 6,716.13 and the Nasdaq Composite

climbed 105.35 points, or 0.47%, to 22,479.53.

MSCI's gauge of stocks across the globe rose

5.19 points, or 0.51%, to 1,013.34 and was poised for its first

back-to-back daily gains in three weeks, while the pan-European

STOXX 600 closed up 0.67%, buoyed by energy and

utilities stocks.

Stocks have struggled since the war in Iran started. HSBC

global equity strategist Alastair Pinder said in a note that

while "talk of a shift toward stagflation is building" the

recent action in equity markets "is more indicative of trading

for a recessionary outcome."

The jump in oil prices and its potential to boost inflation

have prompted markets to adjust expectations for easing by

global central banks this year.

Markets are pricing in about 26 basis points of cuts from

the U.S. Federal Reserve by year-end, down from more than 50

basis points earlier this week, and 36 basis points of hikes

from the European Central Bank after pricing in a modest chance

of a cut as recently as February, according to LSEG data.

While investors were largely not pricing in any cuts from

the Fed at Wednesday's policy announcement, the timing of any

future reductions has been pushed further out this year.

Stock markets rallied on Monday as oil prices dipped on hopes

shipping flows from the Gulf would improve and optimism about

artificial intelligence lifted U.S. tech companies.

CENTRAL BANKS GRAPPLE WITH ENERGY PRICES

The Reserve Bank of Australia voted on Tuesday to hike interest

rates for a second straight month, taking its benchmark rate to

4.1% and warning of a material inflation risk from the Iran war.

Goldman Sachs analysts said the risk of a third straight

hike is "material" but not their base case.

The move set the tone ahead of policy statements this week

from central banks in the United States, Britain, euro zone,

Japan, Canada, Switzerland and Sweden, all of which will meet

for the first time since the start of the Iran war. Investors

will look for clues on how higher crude prices could influence

the rate outlook.

The Fed is widely expected to hold rates steady, and

policymakers are likely to strike a cautious, if not hawkish,

tone due to the current oil shock.

The shifts in central bank expectations have led to large

moves in government bonds recently, although that market was

subdued on Tuesday.

The yield on benchmark U.S. 10-year notes fell

1.8 basis points to 4.202% but is up about 24 basis points for

March. The two-year note yield, which typically moves

in step with Fed rate expectations, fell 0.9 basis point to

3.672% but is up nearly 30 basis points for the month.

The dollar index, which measures the greenback

against a basket of currencies, shed 0.27% to 99.59, with the

euro up 0.28% at $1.1535.

Against the Japanese yen, the dollar weakened 0.02% to

159.03, just below the key 160 level that has previously

triggered interventions by the Bank of Japan, despite verbal

warnings from Japanese authorities on Tuesday.